Cedar Fair, L.P. (FUN) CEO Richard Zimmerman on Q4 2018 Results - Earnings Call Transcript

About: Cedar Fair, L.P. (FUN)
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Earning Call Audio

Cedar Fair, L.P. (NYSE:FUN) Q4 2018 Earnings Conference Call February 13, 2019 10:00 AM ET

Company Participants

Stacy Frole - VP, IR

Richard Zimmerman - President and CEO

Brian Witherow - EVP and CFO

Conference Call Participants

Wieczynski - Stifel

Tim Conder - Wells Fargo Securities

James Hardiman - Wedbush Securities

Chris Prykull - Goldman Sachs


Good day and welcome to the Cedar Fair Fourth Quarter 2018 and Year End Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Stacy Frole, Vice President of Investor Relations. Please go ahead.

Stacy Frole

Thank you, John. Good morning and welcome to our 2018 year end conference call. I am Stacy Frole, Cedar Fair’s Vice President of Investor Relations. This morning we issued our 2018 fourth quarter and yearend earnings release which can be found on our corporate Investor Relations website at ir.cedarfair.com or by contacting our Investor Relations Officers at 419-627-2233.

With me on the call this morning are Richard Zimmerman, our President and Chief Executive Officer; and Brian Witherow, our Executive Vice President and Chief Financial Officer. Before we begin, I need to caution you that comments made during this call will include forward-looking statements within the meaning of the Federal Securities Laws.

These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. You may refer to filings by the company with the SEC for a more detail discussion of these [Indiscernible]. In addition, in accordance with Regulation G, non-GAAP financial measures used on the conference call today are required to be reconciled to the most directly comparable GAAP measures.

During today’s call, we will make reference to adjusted EBITDA as defined in our earnings release. The required reconciliation of adjusted EBITDA is presented in the earnings release and also posted on our Investor Relations website via the conference call access page.

In compliance with SEC’s Regulation FD, this webcast is being made available to the media and the general public as well as analysts and investors. Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.

Now, I will turn the call over to CEO, Richard Zimmerman. Richard?

Richard Zimmerman

Thank you, Stacy. Good morning everyone and thank you for joining us. For our call today we’re going to take a slightly different approach. Brian will begin with a brief overview of our 2018 fourth quarter and year end results and address a few balance sheet items.

I will then take some time to discuss our 2019 expectations as well as our longer-term goals and strategy including our new five-year adjusted EBITDA target of $575 million. Following our remarks, we will open the call for questions.

Before I turn the call over to Brian though, I want to take a moment and thank our team here at Cedar Fair. They are truly committed and dedicated to making our guests happy by providing fun immersive and memorable experiences.

Our exceptional employees are the backbone of our business model and truly differentiate our parks from other generic regional entertainment offerings. Our team’s tenacity is what drove our record results in the fourth quarter and we expect this momentum to carry into this year.

On behalf of everyone on the leadership team we thank all of our employees for another great year and for continue to make us the place to be for fun. Brian?

Brian Witherow

Thanks, Richard and good morning. While 2018 presented a cheer of challenges, I want to take a moment to highlight the impressive achievements of our parks. In 2018 we generated record revenue with increases across all key revenue drivers, attendance ; average in-park guest per capita spending and out-of-park revenues including resort accommodations.

Importantly, we accomplish this despite the challenging weather many of our parks experience early in the year. We introduce our new WinterFest celebration at our fifth park, Kings Dominion. So we now have six parks that are open for operations during November and December.

We increase the number of unique visitors to our parks and the total visitation from season passholders when compared with 2017. And we announced to 4% increase in our annualized distribution rate to $3.70 for 2019, which became effective for the December 2018 distribution payment and is consistent with our growth expectations going forward. This represents an attractive 7% yield at today’s prices.

In 2018 we also advanced many key long-term initiatives that we expect a few additional growth in the near future, including breaking ground on a new hotel adjacent to Carowinds in Charlotte North Carolina and indoor sports facility overlooking Cedar Point in Sandusky Ohio, both of these facilities are expected to open during the fourth quarter of this year.

Looking at key long lead indicators our sales of advanced purchase commitments including season passes and all season products are already off to a strong start this year. While I must caution that as of this past Sunday we had recorded a little more than one-third of our total forecasted season pass sales, we are very pleased with the more than 25% increase today when compared with the same sales period a year ago.

Now, on to the financials. Full year 2018 net revenues increased to a record $1.35 billion, up $27 million or 2% when compared with 2017. This result can be attributed to record performances in three areas.

First, a 1% or 189,000 visit increase in attendance to 25.9 million visits during primarily by an increase in season pass visitation. Second, a 1% or $0.39 increase in average in park as per capita spending to $47 and $0.69 and 36% or $8 million increase in out-of-park revenues to $152 million.

We’re pleased to have achieved growth across all areas of our business. The popularity of our parks food and beverage offerings continue to push peer in-park guest spending to new highs driven by the purchase of our all season dining and beverage programs.

We also saw strength in non-season pass admissions per capita spending reflecting the value our guest continue to place our product offerings particularly our new rides and attractions in group entertainment facilities.

As I mentioned, we increase out-of-park revenues in 2018 largely attributable to our resort properties which achieve higher occupancy rates and higher average daily room rates. The great appeal and convenience of our resort locations generate strong demand, extends our guest length of stay and allows us to market both our parks and our resort properties more broadly as vacation destinations.

As evidenced by our investment in the Charlotte Hotel we will continue to seek opportunities to grow and expand our resort accommodations offerings. Based on the success of our 2019 advanced purchase commitments of more than 25% from the same time last year we expect season pass sales will again be a significant driver of attendance growth.

In 2018 season pass visitations represented more than 50% of our total attendance which we believe is a result of our strong capital program and more immersive events. Just a few minutes, Richard will provide some additional information on how we will evolve this program over the next few years.

On the cost front operating costs and expenses for 2018 totaled $892 million, up $30 million or 3% from 2017, the higher cost which we anticipated resulted largely from an increased labor costs and to a lesser extent increases in operating supplies for the new Winterfest event at our Dominion Park in Richmond Virginia.

Regarding labor costs; in addition increases in minimum wage is the tightening U.S. labor market continue to put pressure on wage rates across the board increasing competition for our seasonal workforce.

Although we anticipate similar pressures through the 2019 season we are rolling out a new workforce management system that will equip us with additional and better tools to more systematically and efficiently manage our seasonal workforce.

We are confident we have the right tools and are taking the right steps to mitigate the impact of rising labor costs on our overall operations. Full year adjusted EBITDA which we believe is a meaningful measure of our park-level operating results was $460 million down 2% or $11 million when compared with 2017.

The decrease reflects the impact of the higher operating costs and expenses which more than offset the attendance growth in the year. While we’re pleased with our record attendance in 2018 attendance growth for the year was lower than anticipated.

We were affected by disruptive weather patterns in the first half of the year and most importantly during the peak vacation month of July. Although attendance growth in the calendar year was lower than anticipated August and the fourth quarter produced record levels of attendance.

We expect the strong demand we generate in the second half of 2018 to continue in 2019 when we will introduce two new signature roller coasters as well as several new multiweek immersive entertainment offerings that we expect to create an urgency to visit our parks earlier in the year.

While we certainly felt pressure during the first half of 2018, our general managers and marketing teams did an excellent job in recognizing that the early-season challenges were not representative of a broader consumer trend. They maintain discipline throughout the season, preserve our price integrity and to manage cost about impacting the overall guest experience.

This operating discipline and dedication to maintaining a high level guest experience contributed greatly to our record-setting second half performance. Importantly, we continue to delight our guests as evidenced by higher net promoter score in almost all of our parks.

This is an important metric that measures the willingness of our guest to recommend our parks to others. Our strong fourth quarter is also worth noting as we expanded our popular fall and winter events.

In 2018, we reported record fourth quarter revenues of $250 million, an increase of $22 million or 9% from a year ago, and record fourth quarter adjusted EBITDA of $68 million, up $7 million or 11% from last year.

The strength of our fourth quarter results validates our ongoing plan investments and commitment to enhance and expand entertainment offerings during the early and late stages of the year.

This represents some of the most compelling growth opportunities for Cedar Fair and Richard will be commenting on a few of these opportunities as part of the new five-year plan.

As a reminder, our teams are committed to a dual mandate delivering strong results in the current year and doing what is needed to protect and grow business going forward. We are focused on maintaining our historically high adjusted EBITDA margins while continuing to invest in and enhance the overall guest experience.

Turning to the balance sheet, overall, we are extremely pleased with the strength of the balance sheet. Our liquidity, cash flow and capital structure remain strong and we have a high degree of flexibility to pursue value enhancing opportunities that will benefit the growth and profitability of the company.

Cash-on-hand at December 31st totaled $105 million with no outstanding borrowings under our revolving credit facility. Our consolidated leverage ratio of 3.6 times is well within our comfort range based on current market conditions.

Our weighted average cost of debt is currently 5% and our nearest to maturity is in 2022. Deferred revenues at the end of 2018 were $107 million, up $21 million or 24% when compared with last year. This year-over-year increase reflects robust sales of 2019 season pass and all season products.

We introduced the new 12-month installment payment option and unlimited visits in 2018 for new 2019 season passholders, and clearly these enhancements were very well received.

For modeling purposes I also want to highlight that our fiscal first quarter ending March 31, 2019 will have one additional week of operations when compared with the first quarter in 2018 which ended on March 25.

The fiscal calendar shift will result in one additional week of pre-opening operating costs and approximately 10 additional operating days being reported in the first quarter when compared to the same quarter year ago. This additional week will be offset in the fiscal fourth quarter this year where there will be one less week of operations when compared to the fourth quarter in 2018.

Also because of this calendar shift approximately 60 operating days removed from the third quarter into the second quarter when compared with the prior respective quarters. For the full year we anticipate the total number of operating days in 2019 to be comparable with 2018.

In summary, our financial position is strong. We delivered record net revenues in 2018 and our strong momentum is continuing in 2019. We’ve got [Indiscernible] structure that affords us the flexibility to pursue attractive market opportunities should they arise and our business model continues to generate significant cash flow, which allows us to pay attractive and growing distribution while investing in our assets to drive sustainable value creation for our unit holders.

With that, I’ll turn it back over to Richard.

Richard Zimmerman

Thank you, Brian. As I mentioned earlier, our mission is to make people happy by providing fun, immersive and memorable experiences. We’ve been doing this for a long time in our track record indicates that we our building on our success.

In fact, our two largest sparks, Cedar Point and Knott’s Berry Farm will be celebrating their 150th and 100th anniversaries respectively in 2020. These and all of our parks have adapted their entertainment offerings to changing consumer taste from generation to generation.

Our ability to evolve and enhance the overall guest experience with modern and engaging family attractions, while maintaining the nostalgia of the past is what brings families of all ages and generations together. And it will be the key to our success for many years to come.

Before I go into the details of our long-term strategy, I want to touch on some consumer insights that inform the key components of our strategy. First, consumers continue to prioritize experiences over possessions. Today’s consumer has a strong desire for multidimensional entertainment. They want a diverse array of activities in one place with experiences that impact all of their senses and where there is something for everyone in their group to enjoy.

While we can’t claim to been the catalyst for the shift to consumer behavior, we are clearly a beneficiary is our parks provide an experiential platform where consumers can immerse themselves in entertainment at a scale not easily replicated by other entertainment offerings.

Second, we continue to live in a bifurcated economy. The introduction of premium products for the higher-end consumer and a more disciplined approach to yield management has allowed us to simultaneously grow guest per capita spending and attendance in all guest categories.

Continuing to offer innovative products that appeal to thrill seeking, amenity craving and value-oriented consumers alike has allowed us to capture the broadest possible audience spectrum, while maintaining integrity in the overall customer experience.

And finally, there’s the issue of time poverty. This is a challenge for many consumers and especially families due to over scheduling and demands technology has placed on our lives as we are all now connected 24x7.

Interestingly through our market research and interactions with our guests, we have found that many consumers are preferring bite-size experiences of four hours or less due to time constraints in their lives. This is particularly relevant for our loyal season passholders who tend to live closer to our parks and have an interest in visiting more often.

Based on these insights and others we have developed a long-term strategy that we believe will enable us to reach our target of 575 million in adjusted EBITDA up by 2023, which implies a 4% compound annual growth rate over the next five years.

To achieve this target we intend to focus on the four most compelling opportunities to accelerate our growth and profitability, broadening the guest experience, expanding our season pass program, increasing market penetration through targeted marketing efforts and pursuing adjacent development.

With regard to our first growth driver; broadening the guest experience, we believe an opportunity exists to leverage our management expertise and assets to offer a more encompassing, more agile entertainment experience at a quality and scale unmasked by others.

Our existing inventory of thrill rides allows us to space out our larger investments in new rides and attractions over a longer period of time, while our near-term investments will increasingly focus on interactive and immersive family attractions, special events, concerts and outdoor gathering spaces.

These less capital-intensive investments will allow for a more consistent spend across all of our parks on an annual basis, create an urgency to visit multiple times throughout the year and provide a greater hedge against disruptive weather patterns that may occur.

For example, we’ve already achieved great success in broadening the guest experience at our Knott’s Berry Farm park in Southern California by introducing five seasons of fun events. The success of these events has driven attendance at this property to more than 6 million visits on an annual basis and help fuel season pass sales at that location and we expect this growth to continue.

In 2019, we have several exciting initiatives to further broaden the guest experience. Let me just highlight three. We will expand our seasons of fun concept to more parks with the introduction of more interactive multilayered events.

Forbidden Frontier we’ll launch at Cedar Point. This will be a real life adventure where guest become part of the story, immersed in interactive encounters with island inhabitants and realistic experiences challenging their problem-solving skills at the mystery of the island unfolds during the day.

We will also add a Winterfest celebration at Canada’s Wonderland near Toronto to expand that parks operating season into November and December, bringing us to seven parks that will be open during the winter holiday season.

These new offerings not only attract new unique visitors to our parks, they also increase the price value proposition of our season passes and encourage your season passholders to visit more often.

This leads me to our second area of opportunity; expansion of our season pass program. It is our goal to transition from a seasonal transaction-based program to a long-term relationship based program focused on the lifetime value for and from our guest.

A paradigm shift of this magnitude obviously will take time, but we are pleased with our progress to-date. The evolution of our season pass program over the next several years will focus on achieving affordability, retention and increased visitation.

We began to address the affordability concerns of our value-oriented guest in 2012 with the introduction of our new e-commerce platform. This allowed us to begin selling our season passes through an installment payment program and provide us with the infrastructure for the upsell of new products and benefits.

Since 2012, we have introduced multiple payment options including most recently enhancing our existing installment payment program with a new 12-month installment option. Over the years we have also introduced numerous advance purchase products such as All-Season Dining, All-Season Beverage, All-Season Fast Lane, and All-Season FunPix.

In 2013, we began investing in a new Customer Relation Management or CRM platform, which compiles multiyear consumer data into one cohesive system. This has allowed us to simplify her guest communications by customizing messages and images most relevant to particular household, driving the right offer to the right consumer with the right message at the right time.

Since the introduction of the e-commerce and CRM systems, we have nearly doubled our revenues from season pass sales. And as Brian mentioned earlier, our 2019 year-to-date sales are pacing well ahead of where we were at the same time last year.

As we look to evolve our season pass program to drive renewal rates even higher, we now have the technology and talent infrastructure in place to introduce the new loyalty and rewards program.

This new program will provide active passholders an opportunity to earn and redeem rewards throughout the operating season and even during times when the parks are closed. We’ll begin testing aspects of this program at several of our parks in 2019 in order to determine what resonates with our passholders and which rewards best motivated -- best motivate value enhancing guest behavior.

We will then plan a broader rollout of the program in 2020. We also believe our new loyalty and rewards program combined with the broad need of our entertainment offerings will encourage our season passholders to visit our parks more often further increasing the average visitation of our more than 2.5 million season passholders per year.

Growing our season passholders base while increasing average visitation are important elements of our long-term plan. Increasing our unique visitor count will be equally as important. This brings me to our third area of focus, increasing market penetration through targeted marketing efforts.

Over the next five years it is our goal to increase unique visits by targeting growing and under penetrated audience segments within our markets. Through consumer and market research along with data analytics we have identified several guest segments that we believe are currently growing and under penetrated within our parks and could produce attractive returns if we utilize the right communication and distribution channels to reach them.

Penetrating these growing segments will require incremental marketing spend. However, there are opportunities to reallocate some of our advertising budget for more mature segments to keep our overall marketing spend between 9% and 10% of expected admissions revenue.

To give you a better understanding of this long-term opportunity, let me use Orange County California as an example. This area currently host approximately 49 million visitors on an annual basis of which Knott’s Berry Farm has a less than 2% penetration. Beginning in 2019, we will begin to allocate additional marketing dollars targeting the tourism market in this area. You can do the math. But by simply penetrating this market by an additional 100 basis points we could entertain an additional 500,000 unique guests at the park.

Finally, our fourth area of opportunity is to expand our out-of-park revenue streams and maximize the value of our existing portfolio through development adjacent to our parks. We currently have more than 1300 acres of undeveloped land that can be utilized for resort expansion, amateur sports facilities and other entertainment concepts.

Projects currently in process including new 129 room, Springhill Suites Hotel adjacent to our Carowinds Park in Charlotte, North Carolina and a new 150,000 square foot indoor amateur sports facility overlooking our Cedar Point Amusement Park in Sandusky, Ohio. Both of these are scheduled to open during the fourth quarter 2019 and we’re extremely excited about the opportunity that both projects represent in their respective markets.

While I have primarily focused today on our attendance in out-of- park revenue streams, I want to assure you that we continue to make investments in additional food, beverage and merchandise facilities to add more capacity and support the growing demands from the guest at our parks. In summary, we are excited about our four key areas of opportunity that we expect to drive our growth over the next five years.

With our best-in-class assets, popular regional brands, strong attendance demand across all our parks in a resilient business model that generates significant free cash flow, we are very confident about our prospects for continued growth and value creation. We look forward to keeping you updated on progress over the coming quarters.

Now, I would like to turn the call back over to Brian for outlook on the key uses of free cash flow going forward after which we’ll open call up for questions. Brian?

Brian Witherow

Thanks, Richard. We’re tried ourselves on being transparent with respect for the allocation for our cash flow. This is a fairly easy business to model as cash is primarily allocated four areas; cash use for debt obligations including interest payments, cash use for taxes, cash use for capital investments and cash use for unitholder return primarily for distributions.

Going forward, we expect annual cash interest payments to be approximately $85 million. It’s important to note, that the majority of our rates have been fixed for the long-term fixed rate notes or interest rates swap agreements.

Cash taxes are expected to be approximately $45 million this year. Based on performance projections our current annuity structure and an effective tax rate were approximately 20%, cash taxes are expected to be between $45 million and $55 million going forward.

On the capital investment front we continue to believe prudently investing in our business is critical to driving long-term growth. Going forward, we believe the appropriate level of investment that aligns with our $575 million adjusted EBITDA target will be in the $140 million to $150 million range.

Investment in non-core business development opportunities such as the activation of the 1300 plus acres of developable land around our parks will be incremental to this level of investment within the quarter.

For 2019, we will be investing approximately $140 million in infrastructure and marketable new rise in attractions. We anticipate investing another $30 million to $40 million in incremental development projects including the Charlotte Hotel, the Sandusky Indoor Sports Center and additional employee housing facilities at several of our parks.

We will continue to place an emphasis on building to scale in all of our projects, as we believe it differentiates our parks and helps to protect the integrity of our business model for years to come.

Finally and most importantly the remainder of our free cash flow will be returned to unitholders through steadily increasing distributions just that Cedar Fair has done historically.

We’re proud of our ability to aggressively grow our distribution over the past several years and we believe we are well-positioned with a solid balance sheet, appropriate liquidity reserve and a positive earnings outlook to continue this trend going forward. Our goal remains to provide a growing distribution in a steady and linear path.

I’ll turn it back over to Richard.

Richard Zimmerman

Thank you, Brian. In summary, we produced record revenues in 2018 by driving growth in all three of our key revenue channels; attendance, average in park guest per capita spending and out-of-park revenues.

I expect 2019 to be even better. For fundamental mandates of our long-term strategy are clear. Over the next several years we plan to broaden guest experience, expand our season pass program, increase market penetration and pursue adjacent development opportunities. I’m excited that what lies ahead and look forward to reporting on our progress.

With that, let me now turn the call over the operator who will open the line for your questions.

Question-and-Answer Session


Thank you. [Operator Instructions]. We will now take our first question from Steve Wieczynski of Stifel. Please go ahead. Your line is open.

Brian Witherow

Hey, guys. Good morning.

Richard Zimmerman

Good morning, Steve.

Steve Wieczynski

So, I guess the first question. I have a couple of questions around your long-term guidance. And obviously you’re kind of embedding four percentage kind of growth number in terms EBITDA. But – and I don’t know how much you’ll kind of help us, just think of maybe what is going into those projections. I know you’re not going to give us like the way you’re thinking about attendance growth and stuff like that. But are there are certain things kind of essentially built in there? Maybe like the economy rolls over. I think some people would exactly, might go into some type of recessionary period over the next, call it, four years? And then maybe also like what are your labor assumptions that are going there as well given – we have continue to see labor increase a good bid across some of your market?

Richard Zimmerman

Steve, good morning, this is Richard. As we thought about LRP and we look at longer-term about how to build out the plan. We’ve seen what we’ve -- the continued evolution of our approach to driving attendance. So, as we think about it we’re trying to balance. As I said in my remarks driving season pass sales, but also driving Unique’s across all of our markets. So, the emphasis is, we look forward as on driving attendance. I’ll ask Brian to talk in just a second about labor. But as we look backwards and forwards we constantly stress test all of our assumptions and one of the conversations of the board is always stress testing our business model.

And as we look at it we’ve got a lot more tools right now to manage through what we see as a stable consumer base over the next few years. So, we’ll talk about putting in CRM systems. We’ll talk about our ability to leverage our e-commerce platform. Also I would add to that a much more sophisticated revenue management system. We’ve got a lot of tools that are focused on understanding the behavior of our guest, looking at the markets that we do business in and sizing them up and then finding a way to grow the attendance and per capita on top of that. So, Brian?

Brian Witherow

Yes. Just -- Steve, just dovetailing off of Richard’s comments. And as he spoke about on the -- in the prepared remarks, all three of the top line key performance metrics, attendance per capita and out-of-park revenues are going to play an important role in the LRP. And that’s going to differ as we work our way through the next five years. I think as you may have taken away from some of the comments early on, I think some of that been near attraction is going to be a little bit more volume-based.

Clearly, we have a lot of momentum around volume over the last couple of years. Even in 2018 in spite of the challenges early the strength over the last half of the year, attendance up 6% at the end of July through 12/31 [ph] underscore that strength volume. And I think the initiatives around expanding the season pass and broadening the offerings to drive more Uniques as Richard just commented on. That will -- the early part of that strategic plan will be a little more maybe volume-based than per capita and pricing based.

But that doesn’t mean that that won’t pick up as we work our way through. As we think about some of the cost pressures in there, we haven’t assumed any Shangri-La, if you will around labor. We know what the pressures have been around either minimum wage hikes on the various markets or the market adjustments we’ve to make in order to stay competitive in a tightening labor market. And so, we’ve assumed a similar pacing if you well, Steve, as it relates to labor going forward. I think as I mentioned in my prepared remarks there are a number of initiatives that we have in place or in process particularly around the implementation of a new workforce management system that I think are going to bear fruit.

We haven’t necessarily assumed all the wins from that. I think, we want to leave some of that to be a little bit of icing on the cake if you will. And so our plan right now and that target of 535, assumes a comparable amount of pressure from labor that we’ve seen over the last several years.

Steve Wieczynski

And, if I heard you right, I assume that, if you look at -- in terms of any type of disruptions to – like in terms of weather, I assume you kind of assumed normal-ish for the next couple of years -- no crazy events, and also, the economy, as well. Is that -- are you assuming the consumer stays where he/she is today? Do you have them softening up a little bit? That might be helpful as well?

Richard Zimmerman

Yes. I would say, it’s hard, right, to ever sit there and look at the five years and say that another 2009 is going to occur in a Year X of that plan. And so the LRP is an appropriately aggressive target. It assumes that the consumer and the economy stays about where it at right now. It assumes that weather as you said is normalized. Although as we talked about internally we’re not quite sure what normalize weather necessarily is anymore because there has been so many challenges in the last couple of years. So, yes, you basically have this sort of assume a normal course on lot of those macro factors that are outside of our control.

Brian Witherow

And one of the things that I would add, Steve, as we look at the broadening of the guest experience and in particular events we’re going to rollout, I think Halloween Haunt and Winterfest give you an example of how we can use events to create urgency when we go to scale. As we think about rolling out the events, the immersive events that we’re rollout early in the year just as we’ve seen success with the Boysenberry Festival, Knott’s in the spring time, we think one of the keys irrespective of economic conditions is that we use events to create urgency and give people reason to come out with limited duration events. We think that works at any point in the economic cycle. And that will be a key driver going forward.

Steve Wieczynski

Okay. Got you. And then second question, I guess, it might be a little bit of a bigger picture question. And I guess what I want to focus on is how do you guys envision yourselves still being able to take price from your customer. What I mean by that is it seems like you might be changing around the way you think about spending your capital and this does or it historically has seemed like it’s an somewhat of an arms race in terms of you’ve got to build the best, the biggest, the fastest roller coasters. And if -- maybe I’m reading too much into this, but you guys kind of changing the way you spend that capital? And I guess that goes to the question as you kind of change the way you think about spending capital? Will you still be able to push price as easily as you have in the past? Does that make sense?

Richard Zimmerman

Great question, Steve. From a capital perspective we’ve made a number of significant investments over the last several years that we think we can continue to leverage into the future. When you look broadly at our capital program, yes, there were large scale significant coasters like Fury 325 or -- at Charlotte -- Steel Vengeance here at Cedar Point. The great examples of roller coasters that were impactful during the year, but we continue to leverage those for many years in our marketing campaigns. When I think about the Hotel Breakers renovation parkwide Wi-Fi at all of our parks, group catering facilities supporting our group sales efforts to water park expansions which really broaden our appeal to our season passholders and families in the regions.

I think the emphasis in the capital and what we call our marketable capital is always going to be on driving demand and leveraging the investments we’ve already made. So, we think that while we’re trying to stretch out the cadence of the more significant investments we’re still going to make significant investments in any given year. But we’re also going to make sure that we’ve got something that we can go to market within in each of our markets to promote demand and increasingly in regards to our ability to take price, we seen an ability with our events to be able to drive price as we create that urgency.

So with our revenue management system in the town we have behind that internally now. When we see demand we’re going to price into demand. The best example I can give you that is Halloween Haunt, which is an event not a coaster. And some of our highest per cab days and our busiest days of the year each year are in October. And I think it underlies the focus on demand more than any -- on any given product and how it ties together.

Steve Wieczynski

Okay, great. Thanks guys. Appreciate it. Great quarter.

Richard Zimmerman

Thanks, Steve.

Brian Witherow

Thanks, Steve.


We will not take our next question from Tim Conder of Wells Fargo Securities. Please go ahead. Your line is open.

Tim Conder

Thank you, gentlemen and I offer congrats on the great wraps of the year, despite the first half. Thank you also for the color. And then I want to do maybe a circle into a couple of things, going to the 12-month on your ability, consumer to pay on the installment plan. Can you remind us you have that nine-month plan, what’s going to change other than three more months? And is there a premium? And how does the accounting go into recognizing that revenue and controlling breakage, so to speak??

Brian Witherow

Yes, Tim, it’s Brian. The 12 months plan and the evolution to that was very similar to what we’ve done over the last several years where we roll these payment plans out originally several years back. We started with three and four month payment plans, and as you indicated gradually migrate up to nine months. Going to twelve months doesn’t change necessarily the accounting other than as you just articulated. We’re spreading the payment for the consumer, the guest over twelve easier installments. And so there’s no change necessarily in our accounting recognition. We’ll still have draws on those visits much like we do with the other payment plans as opposed to more of what we would characterize as a subscription model.

And so, as Richard said in his prepared remarks, our intent with the 12-month was one, to address affordability more -- even more aggressively. And two, test with the consumer with our guess what their reaction would be to a payment plan that had them paying for the past over even a broader window of time when many of our parks aren’t in operation. And as I said in my prepared remarks and Richard comment as well, extremely pleased with the reaction from the guest in terms of not only the new payment plan option but also the unlimited visits and the benefit and the value it added to our sales as evidenced by the deferred revenue being up as significantly as it is year-over-year.

Tim Conder

Okay, okay. And then again, just wanted to clear; was it the units were up 25% or deferred revenue up 25%?

Brian Witherow

The sales dollars are up north of 25%, combination of both units and price.

Tim Conder

Okay, okay, okay. And wanted to maybe get into some of your annual metrics here, Richard, Brian, whoever wants to take this. As it relates to your attendance you alluded to that over 50% of your attendance came from your season passes. Competitor gives an annual specific number. Can you be a little more specific than that? And then the frequency of visitation; I think in the past you also talked about four to five times as the number of visits that the season pass customer comes. Maybe gives a little color as to where that was in 2018 and we appreciate that?

Richard Zimmerman

Tim, it’s Richard. Thanks for the question. As we look at it we -- as we said season pass is more than 50% of our attendance. And while I can’t give you an exact number, I can’t tell you that increased from last year in terms of a percentage. But at the same time as Brian pointed out on his remarks we also increased our unique visitors. So I think we’re really excited. I’m personally very excited about both of those. From a visitation perspective we’ve gone from less than four visits several years ago to now around five visits on average, but we’ve got many of our parks in our system that do six or more visits on their average pass. So as we look at that and look at our long range plan, our look at our business, we think that will continue to grow into the future.

Tim Conder

Okay. And then can you talk about, one that uniques grow across both the season pass, day visitors and group and what’s your penetration of your season passes of your unique base and then maybe also the din. Any color you can give there?

Brian Witherow

Yes, Tim, it’s Brian. So I can tell you uniques were up in both the season pass and non season pass channels which has Richard said is a critical metric for us as we’re constantly looking to bring in new guests not just continue to add visits to our existing guests. As it relates to penetration rates we don’t give out specifics on a lot of those. I will tell you that penetration rates on the all season products primarily dining and beverage are the two that are the most material in terms of the number of units and overall dollars. Those continue to go up each and every year as awareness of the products continues to improve. As we make enhancements to the products or programs. And so we’re very pleased but we know there’s still a lot of runway because those penetration rates aren’t anywhere near the levels that we think they can ultimately get to.

Tim Conder

Okay. And then lastly if I may, given [Audio Gap]


We will now take our next question from James Hardiman of Wedbush Securities. Please go ahead. Your line is open.

James Hardiman

Good morning.

Brian Witherow

Hey, James.

James Hardiman

How you guys doing? Hopefully, we didn’t cut off kind of there. Sounded like you might have had another question, but my question was surrounding the distribution. Obviously we grew the 2019 distribution 4% which is in line with the target despite EBITDA doubling down a little bit last year. Obviously, taxes helped you to do that. I’m assuming that’s not something that you could repeat going forward. Maybe help me with some of the parameters around growing that dividend 4% in 2020. Would you be able to do that if you weren’t able to grow EBITDA 4%. Obviously the hope is that this would be a moot question but how bad would things need to get to force you to actually cut that distribution would be the other question?

Richard Zimmerman

Hey, James, let me jump in here. We just increase as you reference our distribution 4% percent showed the confidence we have in our business model and what we were seeing at the time as we as we came into the end of the year. In particular, I will tell you one of things that I’m very pleased with. When we look at the strength of our deferred revenues and our season pass sales we’re up it in season pass sales at every spark in our system. So our growth in demand is very broad based. So we look at our business model and we’ve talked to our investors, our investors have told us that they all prefer a steadily increasing distribution. The plan we built supports the sustainability and the continued growth in our distribution. And as you know as an MLP, we always, the quality and sustainability of the distributions one of our highest priorities, so we bounce off all of our investment decisions up against the use of cash against the distribution.

Brian Witherow

Yes. James, it’s Brian, just dovetailing on Richard’s comment. The balance sheet over the last several years was rebuilt really at management’s urging and the board’s urging to sustain a year like a 2018 where the growth in EBITDA wasn’t there not because of a fundamental shift in the underlying business or a change in the consumer, but because of sort of a macro disruptive event like the weather that we saw for six to seven weeks during the key months of June and July. So, as Richard said, the board’s confidence, our confidence in the business model underscored that.

But your point is a good one or a question is a good one in terms of 2019, we need to deliver the growth that we’ve indicated as is available to us. Minus that, if that were not to happen I would say that the distribution isn’t at risk. Growth in the distribution would be reviewed should 2019 not turn out to be as strong of a year as we believe it it’s going to be, but the distribution in terms of sustaining where it’s at isn’t at risk in our minds. But growing it would be would be up for discussion.

James Hardiman

That’s really helpful. And then I wanted to circle back to a question I’ve asked a couple times in the past, but it seems maybe even more relevant. We’re coming off the third year in a row where the peak season was somewhat disappointing and then you finished pretty strongly certainly this year very strongly. So I guess the question sort of comes back to cannibalism for lack of a better word as you collect data from your various parks, are you seeing that when you open a WinterFest and people plan on going with that WinterFest that maybe they’re opting not to go in the peak season? And I guess more broadly are you just seeing trends of people preferring the fall or the winter time to come to your parks versus what has historically been the peak summer season?

Richard Zimmerman

James, I think what we’re seeing in the back half of the year is the strength of our event programming of Halloween Haunt and WinterFest. And what that means in creating urgency and giving our guests a reason to come. Again, for both those events they drive both our season passholder base, but they also drive uniques. So as we look at that and as we’ve laid out our long term strategy you’re going to hear us specifically announce in the next several weeks, events that are targeted at earlier in the year. I reference Boysenberry Festival at Knott’s as one of the prime examples of how we’ve driven the early part of the year at Knott’s Berry Farm.

It’s two of the -- two or three of the highest attended weeks that Knott’s has in the course of the year and happens in the spring time. We think the bad -- the strength in the back half of the year validates our event strategy and as we roll out limited time events that are immersive, that are of scale, and again, I don’t want to steal the thunder from our marketing folks. Those -- number of those will be announced over the next several weeks. We think targeting those earlier in the year can grow can grow our uniques, can grow the incremental, the new attendees to our parks and that rather than looking at the shift to the back half of the year something that cannibalize us, our view is it’s validation of our approach embedded in our long range plan.

James Hardiman

Okay. And then just real quick clarification. Sounds like you’re getting an extra week in the first quarter, but remind me how Easter impacts you guys this year? Is not a negative for this year that maybe offset some of that?

Brian Witherow

Yes. So as I mentioned on the call, we definitely are picking up an extra week of operations in the first quarter based on the timing of the fiscal quarter close. Given that it’s the end of March and most of our parks are going to be outside of their operating calendar, James, that’s more, what we call downtime or the ramp up cost associated with. So, little bit of pressure on Q1. And from that perspective with more opportunity, the shift in the way the calendar falls including Easter will benefit us in Q2 and that will – some of those incremental operating days and results will swing out of Q3?

James Hardiman

Got it. That’s helpful. I think I misunderstood. The point about the first quarter is that it’s a negative that there’s an extra week given that you have costs and not revenues.

Brian Witherow


James Hardiman

Got it. Thanks guys. Good luck.

Brian Witherow

Thanks James.


We will now take our next question from Chris Prykull of Goldman Sachs. Please go ahead. Your line is open.

Chris Prykull

Good morning. Thanks for taking the questions. I just wanted…

Brian Witherow

Hey, Chris.

Chris Prykull

Good morning. I just wanted to ask about sort of two components of the longer term plan. I guess first on the capital spending strategy. What drove maybe the view, I don’t want to call a change in view, but maybe to become a little bit less capital intensive or more efficient with your capital spend. Can you point to test cases in certain markets where maybe you’ve switched from a heavier attraction based spend to more events and what the customer reaction has been to that? Could you still push price in those markets? And then, should we expect more OpEx instead of CapEx as you launch some of these events or maybe even more advertising?

Richard Zimmerman

Chris, I’ll give you -- great question. I’ll give you the best example we have and it’s one of our most successful park. Knott’s Berry Farm has been a site that we’ve not invested in large signature steel coasters. But we have invested in is events and this family attractions, immersive, Ghost Town Alive! was our was our best example of a product that was really targeted at the middle of the summer, but very immersive, very interactive. Knott’s has grown as we’ve said over six million people a year. Probably though the most attended regional theme park in the world now. So, very very successful strategy in a highly competitive market, and one of the things we’ve seen at Knott’s is we’ve generated attendance increase and gotten volume while we’ve also been able to get price. So we think that’s a validation of the quality of our guest experience and the value that our guests put on.

Brian Witherow

Yes, and Chris just dovetailing on Richard’s comment. I think one of things that we should clarify is that the CapEx coming down a little bit is not necessarily reflective of a fundamental shift in how we think about it as much as it is also reflective of just efficiencies in our capital spend. And Richard alluded to this a little bit earlier on one of the questions. There are a lot of areas that we’ve spent the last six or seven years investing in that we are now at a point where we’re checking the box that they’re essentially let’s say done or at least the investments going forward are borne around maintaining. And there’s things like reinventing and completely rehabbing all of our guest pavilion and catering areas, park wide Wi-Fi was not an inexpensive investment for us over the last several years and we’re wrapping up the last two parks this year.

So as those things fall off the list there aren’t as many or anywhere near as big of dollars coming in behind the scenes. I think in terms of the marketable new attractions as Richard just said, there is a wide range of opportunities for us from Park to parks. 2019 is still got two big signature coasters; one in Toronto and one in Charlotte. So we’re not walking away from those investments. They’ll be complemented by the events as we talked about on the call. And I think to your question around OpEx its fair to say that the events tend to be a little bit of a 50/50 split if you will. The initial capital outlay isn’t as great as a new ride, but the OpEx hits a little bit heavier than a ride. So, I think WinterFest is the best example of that where there’s no doubt that WinterFest in its first three years puts a little bit of margin pressure on the company, but at long term it is a strategic initiative that is critical to our ongoing growth in both season pass as well as attracting unique visitors.

And so it’s one of the reasons why within our model we don’t assume in the new strategic plan. A lot of a big margin expansion at least in the early years, because some of these initiatives are a little bit more OpEx heavy than they are CapEx heavy.

Richard Zimmerman

And Chris let me circle back I’ll give you one more example of how we’ve seen a broad based approach help on a particular site. If you go to Cedar Point here we’ve got a mile long beach. Several years ago we renovated the historic Hotel Breakers. We renovated the water park. Last year we’ve taken steps to really open up the beach and we’re several years ago, there was limited traffic, limited activity on the beach. Now we’ve activated it with all kinds of daylong family type activities; food and beverage on the beach. And now it’s just packed all during the day.

So anything we can do to give a higher quality experience, a broader appealing type of experience, we really think that has a long term benefit to all of our guests. And by the way, we hope to show that off to our investors later in this year so.

Chris Prykull

Great. That’s really helpful color. I appreciate it. And then just on the second topic of the enhanced marketing or better targeting from a marketing perspective, can you just maybe give us some examples of segments where you feel you are under penetrated. Is it really certain regions or certain demographics? And then along that vein what was the factor in the decision to initially focus on that marketing in Southern California?

Richard Zimmerman

Chris, when we looked at all of our markets, we’ve gone through and updated the market sizing studies that we’ve done to look at our different segments. Tourism quickly jumped out at Southern California because the economy is so robust out there and we’ve got such a good opportunity. But we looked at a number of different demographics. Gen Z, we’ve done a lot of research around Gen Z and what that should mean to us. Moms with kids or our target audience is now heavily based on the Millennials, but the up and coming Generation Z looks at the world a little bit differently.

So as we think about the experiences that we fold into our overall guest experience we’re really looking at what the up and coming generation like Generation Z wants out of their experience and how we can fold that in. So that’s why you’ll hear us talk about gathering places. We continue to see that food and beverage and the quality and the enhancements we’ve put our food and beverage program are both important to our guests not just as a revenue generator but more and more it’s part of the price of entry and part of their decision making set when they choose to go someplace, be it us or somebody else is the quality of the food and beverage. It’s just a much more important part of their overall lifestyle.

So as we think about those things. Those are what we’re looking for, is the segments we can we can start to identify, start to understand what the expectations are and more importantly, how do we reach out and communicate to them.

Chris Prykull

Great. Thanks so much and good luck.

Brian Witherow

Thanks Chris.


We will now take our next question from Barton Crockett [ph] of DCF Stock [ph]. Please go ahead. Your line is open.

Unidentified Analyst

Okay, great. Thanks for taking the question. I had a question about the per cap -- the in park per cap trend in the fourth quarter, which was down a little bit year-over-year. I was wondering if you could kind of unpack for us what was going on the quarter, because I know there were a lot of moving parks in terms of -- there was some accounting skews from adding some more winter festivals that stretched out, I think, accrual of season pass. There was a mixed issue of growth in season pass penetration. But I was wondering if you could unpack that and talk a little bit also about what the core pricing trend was. I know you flagged that you had growth in non-season pass pricing, but what happened with the season pass pricing there as well.

Richard Zimmerman

Barton, good morning. Thanks for the question. I’ll jump in here and then let Brian answer some of the specifics. But when you look at the attendance growth and you look at the impact of WinterFest. WinterFest by its nature is a nighttime event. It’s a slightly shorter length of stay, so you won’t get the same length of stay that, for instance, we get in October as we do with our Halloween Haunt event. Having said that, WinterFest is multigenerational. We’re seeing grandparents come with grandchildren. So, we think it’s not only a great example of broadening our audience, we think it’s key in driving our unique and bringing in an incremental audience. It does put pressure mechanically on the per cap, and maybe Brian can speak to that.

Brian Witherow

Yes, Barton, Richard just hit one of the components there right. In the fourth quarter, October had some of our highest per caps. And November/December, the WinterFest event, while attractive on a per cap in a per hour basis is very good, in terms of the much shorter length of stay, the overall dollar per cap for those events is a lot smaller. So, when you add another event, and one very successful event, like Kings Dominion WinterFest, there’s a little bit of a mechanical effect there pulling it down.

I will tell you that the food and beverage line, which is a big focus for us, was up meaningfully in the fourth quarter, reflective of the strength of that channel. So, that’s something that we look at very closely because, in theory, if we can affect the kind of behavior we want out of consumers and the kind of purchasing we want, that’s something that shouldn’t have a lot of that accounting noise mixed into it. But there’s no doubt that a little bit of the draws around season pass play into it. And then, adding another WinterFest park pulls down that fourth quarter number a little bit as well -- or dilutes it.

Unidentified Analyst

Okay. But is your core pricing access kind of mix, how would you describe that? Is it typical pricing growth or it’s something different?

Brian Witherow

Yes. No, in terms of pricing -- or we like to talk about internally a little bit more of the net yield we’re getting on tickets, because, as Richard said in his prepared remarks, it’s really about the offers that are out there. The right offer to the right time to the right person. And so, pricing, or those offers, were all consistent. If I break apart the two parts of the quarter, Haunts -- we continue to be very aggressive in terms of either the advertised pricing or the discounts -- the lack thereof of pushing a higher net yield. So, our pricing around Haunt this year was as aggressive as it’s ever been, in large part fueled by the momentum we had coming out of August and September and the record August -- very strong September.

And then, WinterFest, we continue -- the parks that are a little further along -- Great America’s in its third year, so we’re gradually taking more pricing at WinterFest there. Kings Island, Carowinds, and Worlds of Fun were in their second year. They’re starting to step into it. But as we’ve said before, it’s a three to four -- maybe four to five year run rate to normalize profitability and pricing around that event. And so, each parks at maybe a little bit of a different point in life cycle when it comes to pricing around WinterFest.


We have one question remaining in the queue. We will take our next question from Tim Conder of Wells Fargo Securities. Please go ahead. Your line is open.

Tim Conder

My apologies for the lengthy number of questions earlier. So…

Richard Zimmerman

No problem.

Brian Witherow

No problem, Tim.

Tim Conder

Would it be reasonable to say that potentially 2019 here could be a little bit of a snap back in the rubber band from the weather depressed years we’ve seen? And essentially, in 2019 at least we could see above that 4% growth, assuming -- let’s call it a "normalized" year?

Richard Zimmerman

Tim, we debate internally -- we shared with everybody on the call. The impact on weather on any given year, clearly, we saw an impact and it was evident in all the numbers that we’ve shared with you. We’ve tried to be as transparent as possible. As we look at 2019, we don’t know where weather will impact. We do know that the most important thing about weather is when and where. If it’s a Tuesday in June, the impact’s a lot less than a July Saturday. I will tell you that, from a demand perspective, we see strong demand as evidence of higher deferred revenues. I think our event programming is going to be stronger than it’s ever been this year. I feel good about our capital lineup and the two signature coasters that we’ve got going into two very important parks for us -- Canada’s Wonderland and Carowinds down in Charlotte.

So, I think we’re poised and positioned for a good year. But by the same token, and we’ve really hit this in our prepared remarks in the long-range plan, we’re about driving as much as we can in terms of demand. But we also want to invest in the things that will fuel our growth in years to come. So, the balance we have is making sure that while we’re optimizing any given year, we’re also laying the foundation for things that will grow in the future.

WinterFest is a great example of that as well. The first year is a little cost heavy. There’s start-up costs. And as we’ve seen -- as Brian just referenced in his remarks a second ago, as you get to the second and third year of those events, you see a lot of growth. So, we’re not going to be shy about making sure that we’re investing in things like the targeted marketing efforts, which will pay off more in years to come than they will in their first year. So, I think the balance for us is always, in terms of thinking about any given year, making sure we’re balancing that tension in the system.

Tim Conder

Okay. And then, you are anticipating having an analyst event later on during the year?

Richard Zimmerman

Yes. We want to get everybody out to a park. Likely, I think we’re pointing toward shortly after our second quarter call. So, it’ll likely be in early to mid-August.

Tim Conder

Great. Thank you, gentlemen. And again, good luck for the year.

Brian Witherow

Thanks, Tim.

Richard Zimmerman

Thanks, Tim.


It appears there are no further questions at this time. I’d like to turn the conference back to you for any additional or closing remarks.

Richard Zimmerman

Thank you all for your interest and ongoing support at Cedar Fair. As I’m sure you can tell from our comments today, we’re excited about what’s in store over the next five years, including 2019, which we certainly expect to be another outstanding year for Cedar Fair. I encourage all of you to visit our parks over the summer and experience firsthand what differentiates our parks from other entertainment offerings. Thank you all, and back to Stacy.

Stacy Frole

Thank you, everyone, for joining us on the call today. Should you have any follow-up questions, please feel free to contact me at 419-627-2227, or our Investor Relations Department at 419-627-2233. We look forward to speaking with you again in about three months to discuss our first quarter results.


Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.